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Probate Assets vs. Non-probate Assets

On Behalf of | Feb 7, 2018 | Probate Assets, Probate Law, Wills |

A big misnomer is that when you die you must go to probate in order to divide the estate, but in fact, the decision on whether or not to probate relies greatly on the type of estate of the decedent. Are all the assets probate assets? Or perhaps the estate is comprised only of non-probate assets? More commonly, the estate is probably comprised of both. One determines the classification of the assets following this rule: A probate asset is one that passes through the will (or court in an intestate estate) to reach a beneficiary, and a non-probate asset can pass directly to a beneficiary outside of a will and/or court.

You are still probably sitting here thinking, “What in the world does that mean?” It’s actually quite simple, so let’s break it down.

After a person passes (the decedent), he or she leaves behind an estate. This estate is the holder of all their things (i.e. assets). If there is a will, then the executor passes the assets as distributed in the will, if there is not a will, then the administrator passes the assets according to the laws of inheritance. The person who receives all of these assets is the beneficiary. But what assets are these? Well, that’s specifically what we are look at today – probate vs. non-probate assets.

Probate assets typically include an individual’s personal items, vehicles, houses or business interests and solely owned accounts without a named beneficiary. However, just because these items are traditionally a “probate asset” does not mean that the item needs to actually be distributed through probate, it just means these items usually pass through the will or intestate. I see many times though when a family can avoid probate and distribute one’s personal items, for example, without actual court involvement.

Still, some of these traditionally probate assets can easily become non-probate assets by naming a beneficiary. Take a bank account, for instance. If a husband and wife jointly own a financial account, they likely have what is known as a right of survivorship on that account, and therefore, the money in the account passes directly to the other surviving joint owner. This can even occur if only one spouse has a separate account, but has still named a beneficiary as a payable on death beneficiary. These documents are held with the bank and they will take precedence over whatever might be in the will. This may be very beneficial to the named beneficiary as they are the owners of the assets even if they were not named in a will or a beneficiary under intestate laws.

Life insurance policies and retirement accounts are additional assets where a person can name beneficiaries, thus making them part of the non-probate estate. The beneficiary designation on those documents held by the account will determine control of the asset post-mortem. Nevertheless, if no beneficiary is named on a retirement account, for example, the payment from the insurance will become part of the probate estate.

Even houses now have a transfer on death deed option available. The execution of documents is one of the many estate planning options available to you as you’re working with an estate planning lawyer. As long as it’s an asset where a beneficiary can be named, or a right of survivorship document can be issued, it can be taken from the probate estate to the non-probate estate side.

Assets held in a trust are also non-probate assets, because the trust controls the assets, and the beneficiaries are named at the time the trust is created. If you have a child as a beneficiary, you may also want to consider setting up a trust (or a contingent trust) and naming the trust as the beneficiary instead of the child. This keeps that award protected until the child turns 18, or even another age that you establish, and it keeps the asset out of probate, since there are sometimes complications with a minor as a beneficiary. This is simply an option; it’s certainly possible to list children as beneficiaries on non-probate assets.

If you’re wanting to investigate the possibilities in distributing your assets to designated people, whether it involves a will or not, I’m available for a consultation at the Law Office of Lisa Vance to discuss your probate needs. It’s helpful to know all your options, starting with the knowledge that probate law is much, much more than just drawing up a will.